In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP.What would be the effect on the aggregate expenditures (AE)function if investment spending were positively related to income?
A)The intercept of the AE function would rise.
B)The slope of the AE function would become flatter.
C)Both the slope and the intercept of the AE function would increase.
D)The slope of the AE function would become steeper.
E)The intercept of the AE function would increase, and its slope would become flatter.

Question

Quizplus · Accepted Answer

If investment spending is positively related to income, the slope of the AE function would become steeper because increases in income would lead to larger increases in aggregate expenditures.

In Most Derivations of the Aggregate Expenditures Model, Investment Is